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Dhaka Tribune

TIB: Hasty and forced mergers new face of continued impunity in banking sector

  • ‘Global standards and BB’s own policies ignored to complete this complex task hastily’
  • ‘Such instances have cast doubts over the entire process even before it started’
Update : 23 Apr 2024, 06:17 PM

Mentioning that hasty and forced mergers are the new face of continued impunity in the banking sector, Transparency International Bangladesh (TIB) has urged for halting the implementation of decisions.

“The central bank has initiated steps to merge underperforming banks with stronger counterparts to save weak banks in the sector, which is supposed to be considered as being in line with global practices related to tackling the crisis in the financial sector,” said TIB in a statement issued on Tuesday. 

However, global standards and policies including the Bangladesh Bank’s own policies have been ignored to complete this sensitive and complex task hastily, said the organization. 

“The arbitrary announcement of certain bank mergers, coupled with concerns among well-performing banks involved in the process and the unwillingness of some underperforming banks, has worsened anxiety, unrest, and uncertainty within the banking sector.”

TIB believes that such instances have cast doubts over the entire process even before it started. 

The anti-corruption organization asserts that the lack of transparency in the bank merger process, particularly concerning the management of default loans and issues of accountability within weak banks burdened by default loans, essentially sidesteps the main problem of the crisis and gives impunity to the factions responsible for loan defaults and forgery.

“According to the merger policy issued by the Bangladesh Bank, underperforming banks are allowed to express their interest to merge with financially sound banks following the assessment of assets and liabilities by an auditor firm enlisted by the central bank and disclosing the details in the current year. Considering the evaluation of assets, there are provisions for good banks to voluntarily express interest in initiating mergers with weaker banks.”

Highlighting that the central bank can only resort to forceful mergers if the initial steps fail, TIB Executive Director (ED) Dr Iftekharuzzaman stated: “Based on media reports, only one weak bank has shown interest in voluntary merger, and conversely, it's not necessarily the case that the financially sound banks mentioned in the process have willingly and consciously engaged in it. 

This suggests that the entire process has been imposed on them arbitrarily, which is a clear violation of the declared policies, said Dr Iftekharuzzaman. 

“Moreover, how fair and reasonable is it to transfer the burdens of default loans and forgeries to good banks without first assessing the assets and liabilities of the weaker ones? It appears that the ongoing actions are akin to prescribing paracetamol for cancer treatments. On one hand, the culture of loan defaults is exacerbated by shielding factions responsible for them and forgery under the guise of mergers. Contrarily, significant attempts are underway to compel good banks to digest weaker ones as a result of their success. This has fostered an atmosphere of anxiety and restlessness across the entire sector,” he said. 

Expressing apprehensions that attempts to salvage weak banks might backfire, the TIB ED remarked: “Government-government, private-government, and private-private mergers are all being considered. However, it remains unclear on what basis these banks have been prioritized, or how the decision was made regarding which financially sound banks would merge with which weak ones.”

Additionally, some banks not yet mentioned in the merger process have been kept afloat through liquidity assistance. However, two government-owned banks, known for their strong performance, are slated to absorb two underperforming banks despite having significant amounts of default loans themselves. Given these circumstances, it is unrealistic to believe that simply merging banks, without ensuring effective accountability-based good governance to address the basic challenges in the banking sector, will resolve the problem or safeguard the interests of clients, said Dr Iftekharuzzaman. 

Criticizing the provisions of the merger policy, which permit directors of underperforming banks to return to the board of the merged bank after a five-year break as well as the provision for the reappointment of top executives implicated in mismanagement, the TIB executive director stated: "This provision rewards the perpetrators behind the banking crisis with impunity rather than holding them accountable. Furthermore, the provision to maintain the secrecy of new irregularities or corruption uncovered during audits of underperforming banks will not only hide financial discrepancies but also hinder the process of holding individuals accountable. Essentially, it means protection from wrongdoings.”

“It is disheartening to witness what is happening in the name of mergers as it shows how defaulters control banks,” he added. 

As per the policy, a state-owned asset management company will acquire the non-performing loans of weak banks, indicating that government funds will be utilized to purchase these bad loans. This essentially means that loan defaulters have once again been exempted by using public funds, reads the statement. 

Given the precarious state of the banking sector and public concerns, TIB emphasizes the need for essential reforms in the bank merger policy. These changes must be in line with global norms and experiences as well as the opinions of unbiased and renowned experts in the field. 

Furthermore, until these reforms are implemented, TIB calls for halting the implementation of decisions made under the pretence of mergers.

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